Nissan to oust Ghosn after arrest for alleged financial misconduct

In this May 12, 2016, file photo, head of Nissan Motor Co. Carlos Ghosn answers a question during a joint news conference in Yokohama, near Tokyo. (AP file photo)

YOKOHAMA--Nissan Motor Co. Chairman Carlos Ghosn was arrested on Monday for alleged financial misconduct and will be fired from the board this week, a dramatic fall for a leader hailed for rescuing the Japanese carmaker from close to bankruptcy.

Ghosn is also chairman and chief executive of Nissan's French partner Renault and his departure will raise questions about the future of the alliance.

Nissan said an internal investigation, triggered by a tip-off from a whistleblower, had revealed that Ghosn engaged in wrongdoing including personal use of company money and under-reporting for years how much he was earning.

Nissan CEO Hiroto Saikawa said too much power had been concentrated on Ghosn, one of the best known figures in the global car industry and a rare foreign executive who enjoyed corporate superstar status in Japan for reviving the ailing Japanese brand.

"The problem of governance was significant," Saikawa said, confirming the arrest of Ghosn in Japan.

"Looking back, after 2005 when he became CEO of both Renault and Nissan, we did not really discuss the implications."

Saikawa, a long-standing lieutenant to Ghosn, said he could not give specifics on the personal use of company money but that the wrongdoing was serious and had gone on for years.

Ghosn could not be reached for comment.

"To have so greatly violated the trust of many, I feel full of disappointment and regret," Saikawa told a late night news conference. "It's not just disappointment, but a stronger feeling of outrage, and for me, despondency."

Saikawa took over as Nissan CEO from Ghosn last year. Ghosn once told reporters the two thought alike.

Saikawa said he would propose at a board meeting on Thursday to remove Ghosn and Representative Director Greg Kelly, who was also accused of financial misconduct. Kelly could also not be reached for comment.

French Finance Minister Bruno Le Maire said the government, Renault's top shareholder, would safeguard the long-term viability of the carmaker.

"The key question for us is to ensure the stability of Renault and of the alliance between Renault and Nissan, so I am working on that with all the parties," he told reporters in Brussels after a meeting of euro zone finance ministers.

GOVERNANCE

Known as "Le Cost Killer" for overseeing turnarounds that included cuts, Ghosn has remained popular in Japan despite pushing through massive job losses and recent controversy over his pay.

According to Japanese media, Nissan paid Ghosn nearly 10 billion yen ($89 million) over five years through March 2015, including salary and other income, but he reported receiving only about half that amount.

Ousting Ghosn, 64, is bound to raise questions about an alliance that he personally shaped and had pledged to consolidate with a deeper tie-up, before eventually stepping back from its operational leadership.

"It is hard not to conclude that there may be a gulf opening up between Renault and Nissan," said Bernstein analyst Max Warburton, raising the prospect of a potential "re-Japanization" of Nissan and the end of the alliance.

Citi analyst Raghav Gupta-Chaudhary said the share price reaction showed how important Ghosn was to the partnership, adding that the alliance had long undervalued Nissan shares held indirectly by Renault investors.

"Ghosn is viewed as critical for value unlock," he added.

Renault owns 43.4 percent of Nissan, while Nissan owns 15 percent of Renault, with no voting rights in a partnership that began in 1999. Since 2016 Nissan has held a 34-percent controlling stake in its smaller Japanese rival, Mitsubishi.

A statement from Mitsubishi said it would propose removing Ghosn from its board.

The allegations are a serious blow at a time when Nissan is still getting over a scandal in which it admitted altering the results of emission and fuel economy tests on vehicles sold in Japan.

Recent cases of corporate malfeasance have hit Japanese companies including accounting irregularities at Toshiba Corp. and data falsification and improper inspections by manufacturers including Nissan.

Brazilian-born, of Lebanese descent and a French citizen, Ghosn began his career at Michelin in France, moving on to Renault. He joined Nissan in 1999 after Renault bought a controlling stake and became its CEO in 2001. Ghosn remained in that post until last year.

In June Renault shareholders approved Ghosn's 7.4 million euro ($8.5 million) pay package for 2017. In addition to this, he received 9.2 million euros in his final year as Nissan chief executive.

He also looms large in France, where he previously turned Renault around and made it into a global player, notably in electric vehicles. He led the French carmaker through major job cuts and an expensive and contentious bailout, earning the nickname "Le Cost Cutter."

Ghosn became a nemesis of French unions and left-wing politicians, who saw him as a symbol of capitalism's excesses, particularly its rich executive pay packages.

Renault shareholders in 2016 voted against Ghosn's pay package as too generous, but the board ignored the move.

That angered then-President Francois Hollande. Hollande's socialist government imposed limits on executive pay at state-run companies and tried to do the same in the private sector but backed down amid concerns such action would scare away foreign investment.